- Partial non resident tax payer status as a result of the 30% ruling
- What is a non resident taxpayer?
The legal definition stipulates that someone’s place of residence is determined ‘according to circumstances’. Several factors are of relevance when deciding whether someone maintains personal and economic ties with the Netherlands. These include a family home, employment, or registration in a municipal register. Nationality is not a determining factor, but it may be relevant in some cases. The law also provides for a number of special cases. The crews of ships and aircraft with a home harbour or airport in the Netherlands are deemed to be residents of the Netherlands unless they have established residence abroad. Dutch diplomats and other civil servants serving abroad remain residents of the Netherlands. Foreign diplomats and the staff of certain international institutions are exempt from Dutch income tax.
People pay tax individually as far as possible. Therefore partners pay tax on their own income and can only use their own deductible items. However, some income and deductible items are joint. Joint income and deductible items can be divided randomly between both partners as long as 100% of the income and deductible items is declared. The choice applies, among other things, to the notional rental value for owner-occupiers and the deductible items from the owner-occupied dwelling, childcare expenses and items that come under the personal deduction.
If partners are married or have registered their partnership at the Records Office, they are automatically each other’s partners (unless they are permanently separated). Partners living together have to meet certain conditions in order to be considered fiscally as partners.
From 1 January 2001, there are three types of tax for taxable income. These types of income are brought together in three so-called boxes:
- Box 1: taxable income from work and home;
- Box 2: taxable income from substantial interest;
- Box 3: taxable income from savings and investments.
Residents and non-residents are taxed on their taxable income. The taxable income is the income less the deductible losses. For residents the income may have previously been reduced by certain payments that are not related to the acquisition of income (personal deduction). The personal deduction is first subtracted from income from work and home (box 1). The income in box 1 must not result in a negative amount as a result of the deduction. Any remainder can be deducted from the income in box 3. Likewise, it must not result in a negative amount. If there is still a portion left, it can be deducted from the income from a substantial interest (box 2). If the personal deduction cannot be subtracted from the total income in boxes 1, 2 and 3, the remainder can be carried over to the following year.
The amount of tax owed is calculated by applying the tax rates to the taxable income. The result is reduced by one or more tax credits. Everyone has the right to a general credit on the tax owed: the general tax credit. Additional credits over and above are available. Which additional credits apply depends on someone’s personal circumstances. For individuals with income from current employment the credit is increased depending on the applicable salary and age. For taxpayers with children special credits are applicable.
The tax rate is a rising scale with 4 brackets. In first 2 brackets the rate is a combined rate consisting of a tax percentage and a percentage for social security contributions. A lower rate in the first two brackets is applicable to people aged 65 and over, as they are no longer liable for several social security contributions.
- What are the tax rates in the Netherlands?
- What is the applicable tax rate? What should my employer withhold?
The 30 percent ruling
Since 2012, the conditions for eligibility have changed. We take you through the new rules step by step. What is the 30 percent ruling?
The 30 percent reimbursement ruling is a tax advantage for foreign employees working in the Netherlands. If a number of conditions are met, the employer is allowed to grant a tax free allowance amounting to 30 percent times 100/70 of the gross salary subject to Dutch payroll tax. This results in a maximum (effective) tax rate of approximately 36.4 percent. The tax free allowance is considered a compensation for the expenses that a foreign employee has by working outside his or her home country.
To be eligible for the 30 percent ruling the following conditions have to be met:
- The employee works for an employer liable to withhold Dutch payroll tax on the employee’s salary.
- Employer and employee have to agree in writing that the 30 percent ruling is applicable.
- The employee has to be transferred from abroad to a Dutch employer or has to be recruited from abroad by a Dutch employer;
- The employee did not reside within 150 kilometres from the Dutch border for the last 18 out of 24 months at the time of hiring;
- The employee’s taxable (!) salary (roughly the gross salary reduced with the tax free reimbursement under the 30 percent ruling) is at least EUR 35,000 per annum.
- The employee needs to have expertise which is scarcely available in the Netherlands.
Flexibility of the salary requirement
To be eligible, the employee needs specific skills that are scarce on the Dutch labour market. The ‘specific skills’ requirement of the old ruling has been replaced. Under the new legislation specific skills are measured by a threshold which is placed at EUR 35,000 taxable. This opens up the possibility to claim the ruling for people with a gross salary of, for example, EUR 40,000 and pay out only EUR 5,000 as a tax free reimbursement. In this situation the employee will still meet the EUR 35,000 taxable salary requirement.
PHD and masters graduates
Less strict rules apply for PHD and masters graduates younger than 30 years:
- The minimum salary requirement is EUR 26,605 taxable.
- If the PhD was completed in The Netherlands, the requirement of “being recruited from abroad” does not have to be met if the candidate is hired within a year of completing his or her studies.
Scientific researchers and medical specialists in training
There is no minimum required salary for scientific researchers who are employed by a university or a research institution that is subsidised by the government. Medical specialists in training also have no minimum required salary.
The requirement regarding scarcity on the labour market will be deemed to be met if the minimum salary requirement is met. The Ministry of Finance indicated however that for sectors where every candidate meets the minimum salary requirement, the scarcity test will still be applied.
The maximum duration of the 30 percent ruling is eight years. Any period spent in the Netherlands over the last 25 years will be used to reduce the maximum duration of the 30 percent ruling.
Having read the above conditions, you may see that you are eligible for the ruling, but what does it actually mean? The salary you agreed on will be reduced by a maximum of 30 percent. In return you will receive this percentage as a reimbursement for expenses. This is the most common way as it will not influence the salary burden for the employer. However, the employer is not obliged to pass on the advantage of the ruling to the employee. In practice it is possible for the employer to partially or fully take the benefit.
Lowering the taxable income will most likely have implications for your potential unemployment or disability benefits, since these benefits are based on your taxable salary. The tax authorities require that both employer and employee are aware of these consequences. Therefore the application for the 30 percent ruling has to be done by both employer and employee and an agreement in writing is necessary. This can be done by means of a clause in your employment contract or as an addendum to the employment contract.
What is considered to be ‘salary’?
This has been a major discussion point over the last few years. Of course, your gross salary is considered to be salary, but what about your bonus, holiday allowance, company car, redundancy settlement or any other benefits in kind?
Basically, your ‘regular employment income’ is the basis for calculating the 30 percent tax-free reimbursement. There are regulations regarding pension premiums, but your bonus, holiday allowance, benefits in kind and company car all fall under the ruling. Severance payments specifically do not fall under the scope, read 30 pc ruling update: Supreme court decides on severance payments and see below
As well as having 30 percent of your salary paid tax free, there are other benefits.
Under the 30 percent ruling you can opt for ‘partial non-residency status’. Even while residing in the Netherlands, you will be considered to be a non-resident tax payer in Box 2 and Box 3 upon choosing the partial non-resident status. For Box 1 income you are still considered a resident tax payer.
Consequently, you do not pay income tax on assets in Box 2 and 3 (except for real estate located in the Netherlands and substantial shareholding in a Dutch resident B.V.) but you are entitled to the partnership ruling in Box 1.
If you have a foreign driving license, in most cases you will still have to redo your test in order to obtain a Dutch license. However, if you benefit from the 30 percent ruling, it is possible to switch your foreign driving license without retaking the test.
Points of attention
Under the new legislation, only payments that are done before the end of the employment relationship (thus the end of the ruling) fall under the 30 percent ruling. Severance payments are however explicitly excluded. If you are made redundant, it is therefore important to:
- have an outstanding bonus payment, holiday allowance, salary payment etc., transferred to your account as soon as possible, and;
- have a breakdown of the redundancy package so it can be determined which part can be considered to be payment of your bonus and outstanding holiday allowance and which part is the actual severance payment.
Employment or self employed
To be eligible for the 30 percent ruling you have to be in an employment situation. If you are self-employed it will not be possible to claim the 30 percent ruling. However, if you set up a UK Limited Company or Dutch B.V. and become an employee of that company, you are considered to be in an employment situation and consequently eligible for the 30 percent ruling.
The 30 percent ruling will become effective in retrospect if the application is submitted within four months after the first day of employment. If the application is submitted after four months, it will become effective as of the first day of the month following the month of application.
If you change job you can reapply for the ruling, provided that you still meet the conditions and your new employment contract is signed within three months after termination of the previous. If you are benefitting from a 30 percent ruling that was issued before 1 January 2012, several special transfer rules apply when you find new employment. Especially people who do not qualify under the new legislation can meet certain grey areas in the law. If this is the case, we advise you take advice.
Returns and assessments
For income tax purposes the tax year coincides with the calendar year. If the financial year of a business does not coincide with a calendar year, the results of such a year are attributed to a calendar year.
Wage tax as an advance levy
People on the payroll are subject to tax on the pay they receive. Employers withhold the tax directly from the payroll and pay this on a regular basis to the tax authorities. The rates, deductions, and any exemptions are consistent with those applicable to income tax. This means that in many cases collecting wage tax is sufficient and no income tax return needs to be filed. This means that for many employees the wage tax is not an advance levy in respect of income tax, but is in effect the final levy.
No income tax assessments will be made unless:
- the tax due exceeds € 22, taking into account the wage tax or dividend tax withheld
- a preliminary refund has been decreed ahead of or in the course of the calendar year, or
- the taxpayer has filed an income tax return.
As is the case with corporation tax, provisional assessments and advance levies are credited against the final income tax assessment.
Combined rates in Box 1 for persons younger than retirement age
|Taxable income||Tax per bracket||Premium National Insurance||Total rate||Total per bracket||Cumulative|
|Of more than||But less than|
|€ 0||€ 19,922||8.40 %||28.15 %||36.55 %||€ 7,281||€ 7,281|
|€ 19,922||€ 33,715||12.25 %||28.15 %||$ 0.50||$ 0.50||xxx|
|€ 33,715||Description||Discount:||$ 0.60||$ 0.60||xxx|
|€ 66.421||52 %||52 %|
Total premium for the national insurance is 28.15% which is divided in:
- AOW (General Old-age Pensions Act ): 17.9%
- ANW (General Surviving Relatives Act): 0.6%
- Wlz (Act on long-term care): 9.65%
Rate Box 2 (income from a substantial interest in a limited company) For the year 2016 the tax rate for income from a substantial interest is 25%.
Rate Box 3 (income from savings and investments)
The tax rate for income from savings and investments stays 30%. Expats with the 30% ruling can opt to be exempted from taxation on savings and most of the investments.
After the tax has been calculated based on the above percentages you can reduce the calculated amount with the applicable tax credits.
|Personal tax credit (max for lower incomes)||€ 2,242|
|Personal tax credit (max for higher incomes)||€ 0|
|Personal tax credit for partner without income born after 1 January 1963||€ 1,047|
|Personal tax credit for partner without income born before 1 January 1963||€ 2,242|
|Labour tax credit (max for lower incomes)||€ 3,103|
|Labour tax credit (max for higher incomes)||€ 0|
If you have children additional tax credits can apply. There are also other specific tax credits depending on your situation but the above are the common tax credits.
For expats working in Netherlands there are tax relief available to help reduce personal tax liabilities and various solutions to reduce both income tax and national insurance in Netherlands whilst working there. If you need any further help don’t hesitate to contact us.
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